Oil sector split over proposed tariff hike

The oil industry is split over a legislative proposal seeking to increase the tariff on base oil, a form of crude oil which yields lubricants and other similar byproducts.

Petron Corp., Caltex Philippines Inc., and the rest of the oil industry are said to be forming a "united opposition" against House Bill (HB) 12268 while the Department of Energy (DOE) and Pilipinas Shell Petroleum Corp. have openly favored the legislative initiative.

HB 12268 sponsored by Rep. Danilo Suarez seeks to impose a 20 percent ad valorem tariff on baseoil up from the current import tax of only three percent. The principal reason for the increase in tariff is to protect the only existing baseoil refinery in the country which is located in Pililia Rizal and is operated by Shell.

Energy Secretary Mario V. Tiaoqui said in earlier interviews that the energy department supports the bill as it wants to encourage the development of local refineries including that for baseoil.

Petron chairman Jose A. Syjuco Jr. said the bill would create an imbalance in the supply of baseoil and its byproducts.

"Our local baseoil refinery simply does not have the capacity to supply the country’s demand for baseoil products," Syjuco said. Most of the oil players import baseoil byproducts like lubricants.

Petron sources its baseoil requirements from more than one supplier: Shell’s Pililia baseoil refinery and foreign suppliers.

"The tariff proposal will allow the manufacturer of locally-produced baseoil to increase prices by the amount of the new tariff without having to worry about quality improvements or competition from imports," the Petron chairman said. "It won’t change the fact that high-grade quality lubricants are not available in the country."

The Shell refinery produces 65,000 metric tons or less than 50 percent of its original capacity of 130,000 metric tons annually. Total baseoil industry demand is said to reach 175,000 metric tons yearly with two-thirds (110,000 metric tons) coming from importations.

Caltex said the bill will create a situation where the supply of baseoil and its byproducts could become scarce. That could result in even higher prices of baseoil and baseoil byproducts or a stoppage of certain industries requiring baseoil byproducts.

Sea-Oil Petroleum manager Francis Glenn L. Yu said the proposal is counter-productive as it will negate the competitiveness of the new players and net importers of baseoil. "The spirit of deregulation and open competition is compromised by the bill."

Other industry players that have openly opposed the 20-percent tariff are Total Petroleum Philippines Corp., Mobil Oil, Eastern Petroleum Corp., and Castrol Oil.

Earlier, the Tariff Commission (TC) rejected the proposed tariff saying it runs counter to provisions embodied in Republic Act (RA) or the Oil Deregulation Law, as well as commitments to the World Trade Organization (WTO).

The tariff structure, based on certain commitments with the WTO, will be revised by the year 2004 but the precent three percent tariff will only be increased to a uniform five percent.

The baseoil residual byproducts include lubricating oils, residual fuel oil, still wax, asphalts and refinery sludges.